RedHill Biopharma's (RDHL) CEO Dror Ben-Asher on Q1 2017 Results - Earnings Call Transcript
May 3, 2017 12:50 PM ET| About: Redhill Biopharma Ltd. (RDHL)
Q1: 04-27-17 Earnings Summary
Press Release News
EPS of $-0.05 | Revenue of $ (+ NaN% Y/Y)
RedHill Biopharma Ltd. (NASDAQ:RDHL)
Q1 2017 Earnings Conference Call
May 3, 2017 9:00 AM ET
Executives
Shani Maurice - VP Business Development & Communications
Dror Ben-Asher - Chief Executive Officer
Micha Ben Chorin - Chief Financial Officer
Guy Goldberg - Chief Business Officer
Gilead Raday - Chief Operating Officer
Analysts
Swayampakula Ramakanth - H.C. Wainwright & Co
Scott Henry - Roth Capital Partners
Jonas Peciulis - Edison Research
Vernon Bernardino - FBR & Co
Ash Thomas - Bybrook Capital
Operator
Good day, and welcome to the RedHill Biopharma's First Quarter 2017 Financial Results and Business Highlights Conference Call. At this time, I would like to turn the conference and to introduce to the conference Mr. Dror Ben-Asher, RedHill's CEO; Mr. Micha Ben Chorin, RedHill's CFO; Mr. Gilead Raday, RedHill's Chief Operating Officer; and Mr. Guy Goldberg, RedHill's Chief Business Officer. Before we begin, we will read from the RedHill's Safe Harbor statement. Please go ahead.
Shani Maurice
Thank you, Ben. This conference call may contain projections or other forward-looking statements regarding future events or the future performance of RedHill including statements with respect to RedHill's expectations regarding the initiation, timing, progress and results of its research manufacturing, preclinical studies, clinical trials, and other therapeutic candidate development efforts, as well as business promotion and other efforts related to RedHill's U.S. commercialization activity. These statements are only predictions and RedHill cannot guarantee that they will in fact occur. RedHill does not assume any obligation to update that information. Actual events, results or achievements may differ materially from what RedHill projects today. Additional information concerning factors that could cause actual events, results or achievements to materially differ from those contained in the forward-looking statements, can be found in the company's Annual Report on Form 20-F and in its other filings with the Securities and Exchange Commission.
And now I'll turn the call to Mr. Dror Ben-Asher, RedHill's CEO. Please go ahead.
Dror Ben-Asher
Thank you, Shani. And to those of you who are on our call live, thank you for joining us. We will briefly discuss the upcoming milestones and leave some time to answer your question. But first, I would like to refer to Micha, our CFO, for a discussion of our first quarter financial results announced earlier today.
We have a technical problem. We'll be right with you. We have a technical issue here, so we'll change the order, and Micha will follow my texts.
So thank you again for joining us today this morning in the U.S. This is an exciting transition period for RedHill and we remain entirely focused on execution on both the R&D and commercial fronts. While we continue to advance the RedHill's development pipeline, including our three ongoing Phase III programs for GI diseases, as well as several additional Phase II assets, we are also getting ready in parallel to commence U.S. promotional activities later this quarter of our commercial GI products, Donnatal and EnteraGam.
On the R&D front, significant progress is being made with our Phase III GI programs; RHB-104 for Crohn's disease, RHB-105 for H. pylori infection, BEKINDA for gastroenteritis, as well as our novel Phase II stage drug candidate, YELIVA.
Exciting potential milestones and data points between now and the first quarter of this year in a likely chronological order include: top-line results from the BEKINDA 24 milligram Phase III GUARD study for gastroenteritis expected this quarter, Q2 2017; initiation of our confirmatory Phase III study with RHB-105 for the treatment of H. pylori infection also expected this quarter, second quarter of 2017; top-line results from the BEKINDA 12 milligram Phase II study for IBS-D, irritable bowel syndrome with diarrhea expected in the third quarter; and a second independent DSMB meeting for the MAP U.S. Phase III study with RHB-104 for Crohn's disease, including an interim efficacy analysis and evaluation of an option for early stop for success for overwhelming efficacy also expected around mid-year.
Our strategy is to become a revenue-generating GI-focused specialty pharma company, with a commercial presence in the U.S. even before RedHill's own pipeline products, if approved, hit the U.S. markets. Our U.S. specialty GI commercial operation is intended to set the stage for the potential launch by the RedHill of its late-clinical stage GI products, if approved. To that end, in January and April this year, respectively, we announced an exclusive U.S. co-promotion agreement with Concordia for commercial GI drug, Donnatal, and an exclusive U.S. promotion agreement with Entera Health for commercial GI product, EnteraGam.
We expect to initiate promotion of both Donnatal and EnteraGam later this quarter to be driven by our experienced and strong U.S. commercial team headquartered in Raleigh, North Carolina, with deployment of a dedicated GI specialty sales force in over 30 territories nationwide. Additional commercial GI products are planned to be added to the bag of our specialty GI U.S. sales force later this year, thus potentially utilizing an increasing economics of scale.
I will now turn back to Micha before outlining the milestones expected in the coming months. Micha, please.
Micha Ben Chorin
Thank you, Dror. Good morning or good afternoon everybody. I will provide a short overview for our financial results for the first quarter of 2017
Research and development expenses for the first quarter of 2017 were $8.1 million, 74% higher compared to the first quarter of 2016, and 9% higher compared to the fourth quarter of 2016. The increase was mainly due to the ongoing Phase III and Phase II studies with BEKINDA; RHB-102 for gastroenteritis and diarrhea-predominant irritable bowel syndrome, IBS-D, respectively; the ongoing Phase III study with RHB-104 for Crohn's disease; ongoing studies with YELIVA for multiple indications and preparations for the upcoming confirmatory Phase III study with RHB-105 for H. pylori infection.
Selling and marketing and business development expenses for the first quarter of 2017 were $600,000 million, 94% higher compared to the first quarter of 2016. The increase was mainly due to the activities related to the advancement of the company's U.S. commercial operations.
General and administrative expenses for the first quarter of 2017 were $1.3 million, 44% higher compared to the first quarter of 2016, and 12% higher compared to the fourth quarter of 2016. The increase was mainly due to the expanded operations. The operating loss for the first quarter of 2017 was $10.1 million, 71% higher compared to the first quarter of 2016, and 13% higher compared to the fourth quarter of 2016. The increase was mainly due to an increase in research and development expenses, as just explained.
Net cash used in operating activities for the first quarter of 2017 was $10.3 million, 108% higher compared to the first quarter of 2016, and only 1% higher compared to the fourth quarter of 2016. The increase was mainly due to the increase in operating loss.
Net cash provided by financing activities for the first quarter of 2017 was $4.5 million, compared to immaterial amounts for the first quarter of 2016. The increase was mainly due to proceeds from an exercise of warrants and options into ordinary shares.
Cash balance as of March 31, 2017, was $61 million, decrease of $5 million compared to $16 million as of December 31, 2016. The decrease was a result of cash used in operating activities together with cash used by investment activities, offset by the cash provided by financing activities.
I will now turn the discussion back to Dror and will be happy to take questions later on. Thank you.
Dror Ben-Asher
Thank you, Micha. We briefly discussed before Micha spoke, the vision and strategy. In terms select recent milestones, those include: the completion of patient enrollment and treatment in the Phase III GUARD study with BEKINDA 24 milligram for acute gastroenteritis and gastritis; completion of patient enrollment in the Phase II study with BEKINDA 12 milligram for IBS-D; initiation of an open-label extension study to the Phase III study MAP U.S. with RHB-104 for Crohn's disease; FDA QIDP Fast-Track designation granted to RHB-104 for NTM infections; Orphan Drug designation granted to YELIVA for the treatment of cholangiocarcinoma.
Select potential milestones expected in the coming weeks and months include: top-line results from the BEKINDA 24 milligram Phase III GUARD study for gastroenteritis and gastritis expected this quarter, Q2 2017; top-line results from the BEKINDA 12 milligram Phase II study for IBS-D expected in the next quarter, the third quarter of 2017; initiation of the confirmatory Phase III study with RHB-105 for the treatment of H. pylori infection expected this quarter, the second quarter; second independent DSMB meeting for the MAP U.S. Phase III study with RHB-104 for Crohn's disease, including an interim efficacy analysis and evaluation of an option for early stop for success for overwhelming efficacy expected mid-year this year; initiation of a U.S. promotional activities for Donnatal and also for EnteraGam this quarter, the second quarter. We also expect initiation of several additional Phase I/II studies with YELIVA for several anti-inflammatory oncology indications, and the initiation of a Phase I/II study with MESUPRON, another new chemical entity in pancreatic cancer expected in the second half of this year.
We continue our extensive corporate development activities in relation to both, acquisition of additional commercial assets in the U.S. within RedHill's primary focus on the GI specialty markets and also external partnership for commercialization of some of our products through out-licensing. We have a debt free balance sheet, several ongoing Phase III programs and several Phase II programs, and a growing U.S. commercial operation.
We continue to position RedHill as an emerging specialty pharma, focused primarily on the specialty GI market in the U.S. We have both advanced GI-focused clinical development pipeline, as well as revenue-generating integrated GI-focused U.S. commercial operations.
Our rapidly growing specialty GI-focused commercial operations in the U.S. is setting the stage for future commercialization of RedHill's owned advanced clinical development GI products, some of which has potential to become blockbuster, if approved by FDA. Our ability to grow it alone in the future in the United States with our GI products, if approved, should help maximize the potential upside generated by those products for RedHill's shareholders.
I will now turn back to Ben, and will be happy to take any questions you may have.
Question-and-Answer Session
Operator
[Operator Instructions]. We're now taking our next questions from Swayampakula from H.C. Wainwright. Please go ahead. Your line is open.
Swayampakula Ramakanth
Thank you. Good afternoon, Dror. Just one or two quick questions. The first one being on the commercial structure that you're putting together in the U.S., what sort of steps are left in terms of getting these two drugs to the market, Donnatal and EnteraGam, in terms of starting your own detailing and how are you using that to prepare for BEKINDA launch if everything goes well with the GUARD study?
Dror Ben-Asher
Thank you. With regard to preparations, we are launching our promotional activities this quarter, so it is around the quarter, and this implies that our operation is almost ready to go, certainly up and running with excellent managers, excellent reps and excellent sales support. We are very excited about that. This also implies that everything we need is in place, including a vendor relationships and strong relationship with Concordia about Donnatal and Entera Health about EnteraGam, all those things are in place and seamlessly moving forward. We are very excited.
With regard to BEKINDA, the growth of the Phase III, are expected this quarter. If the results are positive and sufficiently positive, then we hope to be able to file a new drug application. This means that this drug, if and when the drug is approved, we will have the option to grow it alone in GI. But keep in mind that BEKINDA for that franchises while being in the GI drugs as such, if approved, is not only detailed in GI clinics. In fact, we expect most of the prescriptions to come from non-GIs because of the indication gastroenteritis.
So we will see how this plays out. If we are completely successful and file the NDA, we will certainly want to keep GI to ourself but the rest remains to be seen. I hope I answered your question.
Swayampakula Ramakanth
Yes, that's good. And then for the IBS-D indication, they expect the data in the third quarter. How should we think about what could be the potential steps in terms of getting it into a pivotal study and the launch in terms of timing and what needs to be done so that you can move this product along?
Dror Ben-Asher
Sure. I will let Gilead answer. I will just provide an intro to the answer by saying the Phase II study that we just completed, the enrolment for in IBS-D, is designed according to FDA guidelines effectively as the Phase IIb, which means we hope and expect to move into a Phase III if we are successful. Given that we completed the enrollment, we expect to have the top-line results in the third quarter. But the next steps after if we are successful, I defer to Gilead, our Chief Operating Officer, next to me.
Gilead Raday
Thank you, Dror. Just to add to that, we will certainly have a meeting with the Agency post Phase II meeting once we have the data and we will work to agree the next study design and then points with the Agency ideally with the pivotal study in mind. But until we have that meeting, we won't know exactly what that study will be. I hope that answers the question.
Swayampakula Ramakanth
So for the IBS-D indications, there is - do you think you'll need two studies or one study would be enough for approval? I'm not sure what the regulations are.
Gilead Raday
Yes, it remains to be seen based on our post-Phase II meeting with the Agency. We can't yet give guidance on whether one or two studies will be required.
Swayampakula Ramakanth
Okay. Thank you.
Operator
We're now taking our next questions from Scott Henry. Please go ahead. Your line is open.
Scott Henry
Thank you, and good morning. Just a couple of questions on EnteraGam. I just wanted to better understand that opportunity, how we should think about magnitude of revenues, and as well, how should we think about selling expenses for 2017?
Dror Ben-Asher
Thank you, Scott. We did not provide much color on the magnitude of the opportunity but we did mention 2016 number growth in the PR that we issued when we acquired the rights. So roughly speaking, we are looking at last year numbers of several millions in revenues with limited promotion, and we will be promoting the product starting this quarter, so it will not be a full-year. We also expect some time to pass before we see the impact of our promotional activities. So I would not want to create too high expectations regarding this product this year, and I would not want to create too low expectations given that that we will really like the product.
Scott Henry
Okay. And how many reps would you expect to be in your sales force, say, by the end of 2017?
Dror Ben-Asher
By the end of this quarter, second quarter of 2017, we expect to have over 30 reps.
Scott Henry
Okay, excellent. All right. Thank you, Dror, for taking the questions.
Dror Ben-Asher
Thank you, Scott.
Operator
We're now taking our next questions from Jonas Peciulis from Edison Research. Please go ahead. Your line is open.
Jonas Peciulis
Hi. Hello. Thank you for taking my questions. I have several of them. So just to follow-up on the U.S. operations, I think last time we discussed that the past quarters that it's relatively expecting meaningful sales ahead this year, but is it not too early to talk about the profitability of the U.S. operations, or it's just still too early?
Dror Ben-Asher
Thank you, Jonas. What we said previously would certainly stands, is that we will not make any acquisition of rights to commercial product as a lost leader. Our full intention is not only to reach profitability for the commercial operation, it's tough, but eventually obviously for the whole company as quickly as possible. Therefore you can assume that when we acquired the product, our due diligence yielded a picture that allows us assuming we execute to reach profitability on the U.S. commercial operation relatively fast, not immediately, but relatively fast. I hope I answered your question.
Jonas Peciulis
Yes, sure. I think that's helpful really. Now moving to R&D part. So I was interested to get a bit more perspective on YELIVA, and maybe a bit broader strategy plan, R&D strategy plans with this asset. So you currently have ongoing three trials in three indications and there are additional couple of trials, at least couple of trials in place, so it certainly becomes a substantial program from you about past few quarters. So what's the plan going forward? Is it are you going to move the assets in the later Phase III studies and let the select ones most promising indication, or are these all indications of - the whole asset is thoughtful out-licensing immediately after those Phase 1, Phase II trials?
Dror Ben-Asher
Thank you for that, Jonas. YELIVA is a new clinical entity Phase II stage. It is undergoing several studies that Gilead will elaborate on in a moment. In terms of out-licensing yes or no, those who follow the biotech industry know that the products such as the YELIVA are in between. This is completely a novel mechanism. It potentially addresses numerous potential blockbuster indications. It has been funded largely by the U.S. government to-date.
We are running several Phase I and Phase II programs, both in inflammatory and oncology indications, and the potential for out-licensing is therefore very significant. And that said, those indications we are pursuing, that Gilead will explain in a moment, are squarely within RedHill's focus, including GI.
How this will play out eventually remains to be seen. We will be opportunistic obviously if there is compelling proposal on the table from big or mid-sized pharma for this or that territory. And Gilead will elaborate a little bit about the ongoing and planned studies.
Gilead Raday
Thank you, Dror. As Dror mentioned, we have some ongoing studies, which are primarily investigator-initiated studies and which are supported by National Cancer Institute grants. These are ongoing in large diffused B-cell lymphoma and multiple myeloma indications and in hepatocellular carcinoma.
On top of these, we are sponsoring or we are initiating studies in what we believe will be a promising indications for YELIVA based on what's known on the mechanism of action and preclinical data. And these include, as we announced, Phase II study in cholangiocarcinoma, which is also an orphan designation and there was some interesting data from the Phase I study, which prompted us to pursue this particular indication with high unmet need.
On top of that, we are initiating or planning to initiate in the future, near future, a Phase I/II study in radiotherapy protection in head and neck cancer, and this is also very promising indication due to the high unmet need and also in terms of the fact that the mechanism of action is very much indicative of potential efficacy there. And we have the collaboration with Stanford University on this particular indication in head and neck cancer, also for preclinical work which supports the clinical studies.
And we have a lot of interest from leading sites such as Sanford and the Mayo Clinic in participating in these studies if we are planning to initiate. So we see a lot of interest from the clinics to participate in these studies.
Jonas Peciulis
All right, that's helpful. Thank you. Thank you for those details. So moving forward to commercial update on RIZAPORT and recently there was this news that basically market authorizations in place for your [indiscernible]. So I was just wanted to understanding where you are in terms of maybe actually started selling this product. Obviously the focus for you is now the U.S. operations, given all the synergies with your late-stage portfolio. But just where you are with this asset-intensive [ph] commercial stage?
Dror Ben-Asher
Sure. So RIZAPORT is in non-core asset for us because it's not in GI. Certainly we do not expect to promote it by ourselves anywhere including the U.S. The strategy here is different. It's pure out-licensing. We, together with our excellent partners at IntelGenx out of Canada have completed so far two out-licensing deals, one for Korea and one for Spain. We expect additional out-licensing deals for various territories, including the U.S., hopefully in the near future, and we are also are advancing the NDA preparation in the U.S. for the third quarter.
So to answer your question, we do not have commercial aspirations as such of growing it alone with RIZAPORT. It's not GI. It's not within our therapeutic focus, but it's an important product and we intend to do our best to getting approved not only in additional European countries where it's already approved in a couple of countries, but also in additional countries and in the U.S. itself with re-filing of the NDA in the third quarter this year.
Jonas Peciulis
Okay, that's clear. Thank you. Just last question, quick one on financials. I think you last time mentioned that expected cash burn this year could be around US$10 million in the quarter. Is this still standing?
Dror Ben-Asher
Yes, it is. Yes, we have been saying for a while now that $10 million is roughly the number. In the preceding quarter, we spent less than that. That can happen too. And yes, these are more or less the numbers we are looking at, about $10 million a quarter.
Jonas Peciulis
All right. It's clear. Thank you. That's all from my side.
Operator
We are now taking our next question from Vernon Bernardino from FBR & Company. Please go ahead. Your line is open.
Vernon Bernardino
Hi, Dror, Micha and Gilead. Thanks for taking my question and congrats on the progress. Just have a few questions on the marketing efforts of Donnatal and EnteraGam. Can you characterize the previous marketing efforts for those two products?
Dror Ben-Asher
Thank you, Vernon. I will let Guy answer. Unfortunately there is not much we can say about Donnatal, given that our dear partners at Concordia are a public company and there is sensitivities here. But it was promoted. Donnatal has been promoted to some extent and we'll park it at that. About EnteraGam, I will defer to Guy and he can provide a little bit more color on how it was promoted prior to RedHill taking over.
Guy Goldberg
Thanks Dror. Hi, so as Dror was saying, EnteraGam was promoted by sales force that was a proprietary sales force to the company. And when we - or in the past when we've taken over the product, we're essentially using our own. So we're using a different sales force than the ones that's being used. They also had additional supported functions that they had to support that sales force, including medical fairs and data analytics and typical structure that was used by the sales force. So we're going to be using similar, I guess, in terms of structure but we're definitely using RedHill and other message to promote it beyond what was done previously.
Vernon Bernardino
And as a follow-up to that, do you expect the - let's say, the expense effort will be greater such that the hope is just a little bit more investment will result in increased return in revenue?
Guy Goldberg
Yes, so it's a couple of things. One is that when they were promoting this product, this was their sole product. So we are going to have at least two products in our commercial organization. So already as Dror was alluding to earlier, the economies of scale will be benefiting from that. And yes, there are specific things that we want to do in terms of promotion, in terms of strategies, that are different, that we hope will have an impact on sales but of course they have to prove that and that has to happen. But we definitely have some ideas. We're excited about this project as we are about Donnatal and we look forward to sharing future results.
Vernon Bernardino
And quick questions along those lines. How will the sales force be deployed? For example, what percentage of docs, let's say, if you could characterize or give a number as to their share of prescribing and how many doctors, let's say, of the GI specialists out there, will they be GI specialist, will they also be other types of docs and general practitioners? And then a last question. If it's something you can break out or maybe just give a general description. When do you expect to be breakeven as far as the expense of marketing and the return on the revenue?
Dror Ben-Asher
Yes, thanks for the question. So we haven't given any guidance yet on when we expect to breakeven. I can't answer that right now.
As far as the types of doctors that we'll be detailing, it will be a mix. It will be primarily GI doctors. That's our core areas that we focused on. There might be a couple of unique instances, a few unique instances where there are high prescribing primary care physicians that we might be calling on. But for the most part, those - that's the universe of doctors that we'll be approaching and the way we do it is we divide it according to our territories. We've done some territory mapping that looks at prescribing data and we found that the higher prescribers and we will be focused on them.
I don't have a specific breakdown for you about exactly what desg [ph] of doctors and how we are breaking that down. It's somewhat proprietary, but we are looking at that and that informs how we design the territories and how we hired our reps.
Vernon Bernardino
Terrific. Looking forward to the launch. And one last question. Actually one last, last question. Will you be launching a website for these products?
Dror Ben-Asher
Yes, so they have websites already, so they are online and they are accessible. I don't think we'll be doing anything separate at this stage. That is something we may look at in the future. But there is of course information available on website - on the product websites about the product.
Vernon Bernardino
Okay. And my very last question, I promise. Just wanted to confirm, this is an internal sales force or it's one is that contracted out?
Dror Ben-Asher
Internal. We are doing - these are people who have been at the RedHill employees paid by RedHill with RedHill business cards, everything is RedHill. These are RedHill - this is a RedHill sales force.
Vernon Bernardino
Thanks so much for taking my questions and I look forward to the launch.
Dror Ben-Asher
Thank you.
Operator
[Operator Instructions]. We're now taking our next question from Ash Thomas from Bybrook. Please go ahead. Your line is open.
Ash Thomas
Hi guys. Thank you for taking my call. I just wanted to come back to the point on Donnatal, because just based on the discourse Concordia has given, I believe they had a 75% strong sales force and you guys are talking about a 30% strong sales force here. And then as I understand the agreement is structured based on what Concordia has disclosed, there is a baseline or a threshold of revenue where if you sell over that level, RedHill starts making money. And as far as I can tell from the IMS script data, the Donnatal sales have been in terms of scripts declining. So I would just love to see how you thought about that when you're doing your due diligence and when you're signing the agreement?
Dror Ben-Asher
Sure. So I appreciate your interest and your questions, Ash. When we evaluated the Donnatal, we reached the conclusion that we like the product and that we can do good things with it. The cooperation with Concordia has been excellent. There is indeed a baseline that needs to be exceeded, which we fully intend to do.
It remains to be seen by how much, but we believe the potential is certainly there to do well with this product. We have a dedicated sales force, excellent sales force, that we are launching promotion with this quarter, and we will be covering of course most of the important, all the important U.S. territories for detailing, as well as covering the remaining territories so-called white space using different methods.
We are trying to be creative. We are extremely in compliance. We have exciting plans what and how to do, and we will know more latter this year and deliver the information to the market as soon as we know it about sales and sales growth and so on. I apologize that I cannot provide too much color given the restrictions and given the fact that Concordia has its sensitivities, which we fully respect.
Ash Thomas
Okay. Thank you very much. It sounds like you have some pretty exciting plans here for quarter.
Dror Ben-Asher
Thank you, Ash.
Operator
There are currently no further questions. I would like to turn the call back over to the speakers for any additional or closing remarks.
Dror Ben-Asher
I would like to thank you all for your interest and taking the time this morning or this afternoon in Israel and the Europe. We remain available to take any questions, any follow-up requests on phone that you may have, as always, and looking forward to the earnings call next quarter.
